‘Code of Ethics’ as a management device towards employee ethical behaviour

Friday, 17 February 2017 00:00 -     - {{hitsCtrl.values.hits}}

By Viruli de Silva

What is a Code of Ethics?

Code of Ethics or Code of Conduct is a familiar term in business organisations, and it is also considered as an important document in the organisation. What is a Code of Ethics? It has no universally accepted definition, but has been identified as a formal document which governs ethical standards of employees’ conduct in organisations. 

A Code of Ethics states the main ethical principles and values in the organisation, and functions as a policy document. It articulates the ethical/professional conduct expected of employees, and expresses the acceptable ethical boundaries of behaviour in the organisation. Almost every Code of Ethics in an organisation appears to be in a legalistic form, but it goes ‘beyond the law’ as it focuses on the ‘spirit’ in adding to the ‘letter’ of the law. 

Code of Ethics are extensively used by companies as a management tool. A well implemented Code is a strategic device for an organisation, as the Code contributes towards the company’s many key aspects: strategic framework, ethical identity and reputation, ethical guidance to employees, reflects the culture and work climate, etc. 

Adherence to the Code of Ethics is a commitment an organisation can undertake towards a strong ethical climate in the organisation. Code of Ethics also enhances social responsibility and explains the norms and values the organisation wish to uphold.

Common Codes of Ethics

Some countries have a common Code of Ethics for strategically important industries in the economy. For example, Malaysia has a common Code of Ethics for its Financial Services Industry, issued in 2014 by the Financial Services Professional Body (FSPB), through Bank Negara and Securities Commission, Malaysia. 

This Code specifies key ethical principles for high standard of professionalism and ethical conduct of institutions and employees in the Malaysian Financial Services Industry. It is mandatory that they adhere to the ‘ethical’ rules and regulations specified in the code.

The Sri Lankan banking industry too has a common Code of Conduct labelled ‘Customer Charter,’ issued by the Central Bank of Sri Lanka (CBSL) in 2007 (www.cbsl.lk). The ‘Customer Charter’ is a set of professional/operational guidelines to bankers, with regard to the daily operations of customer transactions in banks. 

It is mandatory that all licensed banks operating in Sri Lanka and their employees adhere to the rules and regulations specified in the ‘Customer Charter’. Thus, it directs employees towards professional conduct in handling operational transactions of customers in the banks. In addition, the ‘Customer Charter’ specifies customer obligations towards banks. It specifies how customers should fulfil their responsibilities towards the bank, when receiving their expected services. 

In addition to the ‘Customer Charter’ of the CBSL, the banks operating in Sri Lanka have their own individual Codes of Ethics/Code of Conduct, to guide the management and employees, towards ethical and professional behaviour at work. All established business organisations in Sri Lanka too have their own Codes of Ethics/Codes of Conduct, which guide towards employees’ ethical behaviour in the Company.

Benefits of Codes of Ethics in organisations

Researchers have identified that Code of Ethics or Codes of Conduct can be used as a strategic tool to enhance a company’s ethical reputation. European companies have used Codes of Ethics/Conduct to regulate labour relations and discourage intervention of the government. 

It has been identified that, Codes of Ethics can improve work climates and make employees feel positive about their organisations. Most importantly, researchers have identified that Codes of Ethics in organisations could enhance employee ethical behaviour, and also Codes positively influence ethical decision-making (Trevino & Weaver, 2003).

This study had identified that, open discussions about ethics in the organisation helped to increase ethical behaviour of employees in the organisation. Further, it was noted, strong leaders who share their values with others, positively affected the organisation and its Code. Research have identified that, when managers’ and employees’ behaviour was consistent with codes, their behaviour positively influenced others in the organisation. Further, companies which possessed Codes of Ethics have reported fewer incidents of unethical behaviour, than the companies which did not have a Code. It has been recognised that Codes of Ethics could develop patterns of trust among employees. 

Many researchers have identified that, Codes can encourage employee and managers to act with integrity and the Codes can serve as valuable management tools. In a study which analysed 67 earlier research on Codes revealed that, Codes positively affected behaviour in many organisations (Kaptein & Schwartz, 2008). Further, it has been noted, Codes of Ethics in organisations also serve as good communication devices, as they give organisational members a sense of shared values and commitment to ethical purpose. 


Researchers have identified that to make a Code of Ethics more effective, an organisation should fulfil certain vital conditions: the Code must be communicated effectively; It should be communicated well through the correct channels; it should be supported by the senior management team; it should be readable; contents of the Code should be clear (clarity); Code of Ethics should include ethical principles and rules, based on universally accepted ethical principles (availability), and a Code of Ethics should be written positively, rather than negatively. Further, research reveals that communicating a Code from the ‘top’ often leads to the Code being ignored, thus ineffective. 

Generally, Codes of Ethics are communicated to the employee in orientation material or posted on the Company intranet or website. Many employees do not read this vital document, until an event or crisis occur. Thus, communication is key to the effectiveness of a Code of ethics, employees must know why a Code exists? Finally, researchers argued that, “Creating a Code of ethics will not guarantee that ethical behaviour will occur, ethics; the Code and ethical decision-making must be infused into the organisation, and not ordered from the top-down.” (Neube & Wasburn, 2008). 

[The writer is a senior Commercial Banker and former Director Studies of the Institute of Bankers of Sri Lanka (IBSL). She is currently reading for a ‘PhD in Management’ at the University of Sri Jayewardenepura, Sri Lanka.]